Friday, May 02, 2014

A couple of minor VAT issues – the sequel!

Now we have found out the reason why our client was told a few months ago that his company had not been deregistered for VAT despite ticking the “deregistration applies" box on the VAT 769. It was not a “rogue” member of staff doing their own thing, but a change of HMRC policy as a result of legal advice they had obtained and which they have now finally told the profession about in VAT Brief 13/14.

You can find a copy of the brief by clicking here, but in summary, where the company, partnership or individual (“entity”) in respect of which you are the office holder is VAT registered then you now have to wait until you have realised all of the assets before you can request HMRC to de-register. The reason for this is that HMRC have received legal advice that once an entity has deregistered for VAT then it cannot issue a valid VAT invoice.

The note goes on to make it clear that the entity only has to remain VAT registered if it is making taxable supplies, which would include asset realisations by the IP, where those supplies are above the VAT registration threshold. If the supplies are below the threshold, which is currently where VAT taxable turnover for the year is less than or equal to £79,000, or if you expect it to fall to £79,000 or less in the next 12 months, then you have the same right to de-register the entity for VAT as any other trading entity. As a result, depending on the size of the case you are dealing with, you could decide to either deregister the entity for VAT on appointment, or leave it VAT registered until all taxable assets have been disposed of, completing any routine VAT 100 returns received in the interim.

Unfortunately the note does not go on to indicate the process by which you deregister the entity once all taxable assets have been sold. Presumably though HMRC will continue to issue their standard enquiry Form upon receipt of a VAT 769 asking whether it is appropriate to deregister for VAT. Assuming they do, then you could try completing and returning that Form to de-register rather than using the standard de-registration Form, a VAT 7 (Application to cancel your VAT registration). No doubt at some stage HMRC will let us know which approach they would prefer IPs to take.